Why Women Need Their Own Robo Advisor

May 23, 2016

Estimates vary, but the range is impressive nonetheless: There is anywhere from $5 trillion to $11 trillion in investable assets commanded by women today. The pie is huge, but the financial industry has long been told it does a poor job at catering to women investors, many of whom go through life underinvested and underserved.

That’s beginning to change. The latest effort to meet women investors’ needs is coming in the form of a digital advisory service, Ellevest—a firm much like robos Wealthfront and Betterment, except that this one is built specifically to serve women.

We caught up with Ellevest CIO Sylvia Kwan, who told us the story behind the firm founded by Sallie Krawcheck, former president of the Global Wealth & Investment Management division of Bank of America, and its goal to change how the industry caters to this massive market, one woman at a time.

ETF.com: Tell me a little about Ellevest. Why create a robo advisory that caters specifically to women?

Sylvia Kwan: Women generally are underinvested, especially relative to men, even though they control more than $5 trillion in investable assets. That's unfortunate, because women tend to live longer, so they need their assets to last longer.

Research has shown that women are often sitting on cash parked in savings accounts. They are also often in a lot more conservative portfolios. They take career breaks, and they also earn less. For all of these reasons, they can’t be underinvested, but they are.

We believe one of the reasons they're underinvested is that the industry isn't really serving their needs very well. There's a lot of jargon in this industry, a lot of sports analogies—“we’re trying to beat the market”—that doesn’t resonate with women.

Women aren’t looking to make the biggest pile of money they can make. They have financial goals, and they want to be investing for those goals. They don't really care whether they beat the S&P 500. They want to make sure they will retire well, or that they have the money they need to make a down payment on a house. It’s a goal-oriented approach, rather than trying to maximize returns as much as possible.

Ellevest was founded to meet what we believe are the unique needs that currently exist for women when it comes to investing. We've started from the ground up, and thoughtfully looked at what should be the investment process for a goals-based approach.

ETF.com: So in your experience, other robos and automated services like Betterment, Wealthfront and Vanguard's Personal Advisor Services are unable to properly serve women today?

Kwan: I wouldn't go as far as to say they can't or are not serving women well; I don't believe that. I think all of these firms can serve women well. But what we offer is really unique toward women. It's based on what we've heard from women about what they want and how they want to invest.

Let me give you an example. For retirement, many firms estimate how much you're going to need in retirement, and they project how your retirement assets will grow in order to achieve the retirement that you want. That's based on a savings rate, which is often based on your salary.

So, the first question is, what’s your salary? And then they make an assumption about what your salary growth is—maybe it grows with inflation, or inflation plus 1% merit, something like that. But it's basically a straight line. And that's been the traditional way to do it.

At Ellevest, we recognized that women's salary curves are very different from men's salary curves. In fact, for a woman with a bachelor's degree, her salary peaks right around 40, whereas a man's salary with the same bachelor's degree peaks at 60. The differences can be really significant, depending on the type of salary assumptions that we use, because this is long term.

We're trying to be realistic about what a woman’s salary’s going to look like. In the end it might mean you actually need to save more than a man would.

Another difference about our approach is in our forecast. We’ll show her the likelihood of achieving her goal. This is not too different from, say, Betterment and Wealthfront. But the difference is that we’re shooting for a higher likelihood of achieving her goal.

We found in speaking with women that they're looking for a higher level of certainty in their life—50/50 just doesn't feel comfortable for them. So our process centers on a standard to show a 70% likelihood of achieving their goal.

That often means you start with a lower forecast, or she might need to work another year longer, or save more along the way, but that higher probability of meeting the goal is very important to her.

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